What is Liquidity Pool?. A liquidity pool holds pairs or baskets of tokens in a smart contract so traders can swap without order books.
How it works
Pricing follows a formula (e.g., x·y=k). Providers earn trading fees proportional to their share of the pool.
Why it matters
Pools keep markets open 24/7 and lower barriers to launching new assets.
Common pitfalls
- Providing liquidity to volatile pairs without hedging
- Depositing into pools with low volume and high decay
- Not understanding how fees offset impermanent loss
Quick example
You add equal values of two tokens to a pool and earn a portion of every swap.
See also
- DEX
- Impermanent Loss
- Slippage
TL;DR: What is Liquidity Pool? defined in plain English with practical next steps.
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